ALL state taxes and levies on the general insurance sector should be abolished to help address the high level of under-insurance in Australia, a government-appointed panel has recommended.
The Australian Financial Centre Forum, chaired by former Macquarie Bank director Mark Johnson, found that the range and diversity of state taxes added significantly to the cost of insurance, especially for businesses operating Australia-wide.
It said the issue should be addressed urgently.
"(State taxes) are undoubtledly a factor contributing to under-insurance, with consequent increased demands on the public purse," the forum said in a 160 page report released by Assistnt Treasurer Chris Bowell on Friday.
"Along with the variety of state non-prudential regulations, they also act as a barrier to new entrants to our insurance sector."
Australia’s $24 billion general insurance market is dominated by four players – Suncorp, Insurance Australia Group, QBE and Allianz – and premium rates have been climbing steadily amid rising claims costs.
The forum, which included representatives of the financial services industry, found that differences in state regulations, such as motor vehicle licence rules, workers’ compensation and builders’ insurance, increased higher costs for national insurance companies, which passed them on to consumers.
"Resolving these tax and regulatory issues will provide the basis for a more competitive and efficient domestic insurance industry by providing growth opportunities, economies of scale, lower costs through less administrative and compliance complexity and potentially more competition," the forum said.
"A stronger and more competitive domestic industry may also provide a stronger base from which to expand offshore."
There was also scope for more global insurance companies to use Australia as a regional headquarters, the forum said.
The forum recommened that state insurance regulations be standardised under a national system.
The Insurance Council of Australia, which represents the general insurance industry, said harmonising the different state and territory statutory insurance schemes would require a significant, long-term commitment by the federal government.
The AFCF report made a host of recommendations aimed at turning Australia into a regional financial hub, in line with the federal government’s long-term ambitions.